On Saturday, May 7, Nyquist won the 142nd running of the Kentucky Derby, the first jewel in the coveted Triple Crown. American Pharoah won the Triple Crown in 2015, the first since 1978. Will Nyquist repeat this year? Racing enthusiasts will have to wait until the Preakness Stakes, the second jewel, is run on May 21.
Canadians and other non-U.S. residents who bet on the Triple Crown or any other horse races while visiting the U.S need to remember that their pari-mutuel winnings could be subject to a 30% withholding tax by the Internal Revenue Service (IRS).
The Kentucky Derby
The Kentucky Derby is referred to as the “greatest two minutes in sports,” and it takes place at Churchill Downs in Louisville, Kentucky on the first Saturday in May. The Preakness Stakes, which is run at Pimlico Race Course in Baltimore, Maryland, is run on the third Saturday in May. The final leg of the Triple Crown, the Belmont Stakes, is held at Belmont Park in Elmont, New York on the second Saturday in June.
The biggest horse race in the world, the 1.5 mile Kentucky Derby has the highest handle of any horse race with millions of people placing bets from various live tracks and sportsbooks.
In 2015, a record 170,153 people watched American Pharoah take the first step toward the Triple Crown. In addition to setting an attendance record, the 141st running of the Kentucky Derby also set a record for betting. Wagering from all sources on the Derby increased four percent over 2014’s total to $194.3 million. Wagering in 2015 was also up four percent from the previous record of $187.0 million set in 2012.1
Churchill Downs held the first Kentucky Derby in 1875 (along with the first Kentucky Oaks). Interestingly, the Kentucky Derby and Kentucky Oaks (held the Friday before the Derby) are the oldest continuously contested sporting events in American history.2
Live racing begins at Churchill Downs in April and the season closes on Thanksgiving weekend in late November. While the most popular races at Churchill Downs are the Kentucky Derby and Kentucky Oaks, it is also home to a number of other Grade I, II, and III stake races, including: the Clark Handicap, Humana Distaff Handicap, La Troienne Stakes, Stephen Foster Handicap, and Turf Classic Stakes. Churchill Downs is also home to the Northern Dancer Stakes and has hosted the Breeders Cup.
Pari-mutuel betting is the most popular way to bet on horse racing. The term originated in France and means “to wager amongst ourselves.” And that’s exactly what pari-mutuel betting is. When you place a wager at a casino, you’re betting against the house. With pari-mutuel, you do not bet against the racetrack; you wager against each other.
Other than taking a small commission for handling each bet, the track has no stake in who wins or loses a race. Churchill Downs only holds money wagered on the Kentucky Derby until the end of the race and pays out to the ticket holders.
Pari-mutuel betting is not exclusive to horse racing. It takes place in all sporting events of short duration where participants finish in a fixed order, such as dog racing and jai alai. That said, it’s important to understand pari-mutuel betting and how it differs from fixed-odds betting.
With fixed-odds betting, the oddsmaker sets the odds for an outcome. If this outcome occurs, you are paid based on the odds you bet on—no matter how many people made bets or how much was bet.
In contrast, with pari-mutuel betting, you wager against others betting on the same event. Because you are betting into a pool (everyone else in the stands), the payout is determined by the total number of bets. As a result, the odds will change as more and more people place bets. By the time the Kentucky Derby begins, the odds could be entirely different (higher or lower) than the odds posted when you made your bet.
U.S. Pari-Mutuel Winnings Subject to 30% Withholding Tax
If you are a non-U.S. resident and win a significant amount of money (typically over $1,200) betting on the Kentucky Derby, at a casino, on a game show, or playing keno, bingo, or the lottery, your winnings could be subject to a 30% withholding tax.
If you win $1,500 betting on the Kentucky Derby, you walk away with just $1,050. The IRS keeps the rest. If you live in a country like Canada, which has signed a U.S. tax treaty, you may be eligible for a refund.
There are a number of countries that currently do not have a U.S. tax treaty, however still might qualify for a refund. If you reside in any of the following countries, you could still be eligible for a refund: Australia, Bahrain, Barbados, Brazil, China, India, Indonesia, Israel, Kuwait, Malaysia, Mexico, Monaco, New Zealand, Norway, Saudi Arabia, Singapore, South Korea, Switzerland, Taiwan, Thailand, and the U.A.E.
To see if you meet the criteria and are eligible to get some or all of your withholding tax back, contact RMS.
RMS is the Easiest Way to Get Your Pari-Mutuel Withholding Taxes Back!
If you plan on visiting the U.S. and attending any of the jewels in the Triple Crown and expect to have 30% of your winnings withheld by the IRS, the tax refund experts at RMS can help you reclaim a portion or all of your taxable winnings.
Founded by a Canadian chartered accountant in 1998, RMS is the most reliable and experienced wagering, gaming and casino tax refund provider for non-U.S. residents. Only RMS has the One Simple StepTM process. Our customer service agents take care of the rest.
Once you provide us with complete documentation, your claim will be processed and we will submit it to the IRS. RMS has never been refused an eligible refund!
1.“2015 Kentucky Derby Sets Attendance, Betting Records,” Yahoo! Finance web site, May 4, 2015; http://finance.yahoo.com/news/2015-kentucky-derby-sets-attendance-003233404.html.
2.“Kentucky Oaks,” Kentucky Derby web site; https://www.kentuckyderby.com/history/traditions/kentucky-oaks.